Equity loans A tutorial
For example, it is common for a mortgage to have fine print that requires the holder to pay a penalty if the mortgage is paid off within a set time after taking out the loan. The penalty is intended to keep the mortgage open long enough for the bank to make a decent profit from it. Most mortgages have this kind of penalty attached, and normally the penalty period does not pose a problem. The penalty period is usually so short (for example, one year on a twenty to thirty year loan), that it is extremely uncommon for a mortgage holder to pay off the mortgage or get mortgage refinancing during the penalty period. However, if the loan is one of the few with a longer penalty period, the homeowner can effectively be prevented from getting mortgage refinancing during a period when interest rates have dropped to attractively low levels.